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NYSERDA green bonds issue holds higher loss outlook than prior series

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There are potentially higher-than-usual credit losses ahead for a third series of solar loan-backed bonds issued by the New York State Energy Research and Development Authority (NYSERDA), according to Kroll Bond Rating Agency.

The $16.69 million issuance from the NYSERDA Residential Solar and Energy Efficiency Financing Green Revenue Bonds Series 2020A have a base-case loss range that Kroll projects between 7.2%-9.2%, compared to just 4.6%-6.6% for the body’s 2018 bond issuance and 6.23%-8.23% in its most recent green-bond offering a year ago.

The primary differences are the potential economic stresses on borrowers related to the coronavirus pandemic, as well as NYSERDA’s choice to include a higher share of loans from borrowers with lower FICO scores, Kroll stated in a presale report. The loans pooled for the new series include a 21.2% share of the so-called "Tier 2" loans, compared to 13% in the Series 2019A bonds.

To mitigate the riskier segment of loans, NYSERDA included only Tier 2 loans that had been seasoned with five years of payments, and also included more solar loans (53.8% of the pool) that carry a lower loss assumption than loans for residential energy-efficiency improvement.

Kroll issued preliminary single-A ratings to nine serial bonds totaling $13.45 million and a $3.24 million term bond, backed by $23.3 million of solar and energy efficiency loans underwritten by a third-party firm Slipstream Group Inc.

The bond proceeds will be used to purchase the mostly prime loans to fund installations on one-to-four family residences that are eligible appliances for NYSERDA’s Green Jobs – Green New York program.

The NYSERDA 2020A Series bonds are not guaranteed by the authority, and are non-recourse. The 2020A series is the seventh securitization since NYSERDA began offering the loans in 2014.

The loans terms are five, 10 or 15 years with an average remaining term of 159 months and an average contract rate of 4.64%. The average loan balance is $10,312, and the pool’s borrower weighted average FICO is 745 (in line with NYSERDA’s previous transactions).

The loans are issued at interest rates that are determined by a borrower's household income, and include loans that were offered a temporary 0% interest rate promotion in June to help out contractors sidelined by slowing business due to COVID-19.

Unlike the two prior deals, NYSERDA will have no prefunding period associated with the Series 2020A bonds, which are expected to price Oct. 1.

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